Zimmer Biomet's ZBH strategic product launches and stabilizing market trends bolster our confidence in this stock. However, factors like macroeconomic uncertainties put pressure on the bottom line. The stock carries a Zacks Rank #3 (Hold).
Factors Driving ZBH's Share Price
Zimmer Biomet is diligently working to strengthen its foothold in international developed and emerging markets that provide long-term opportunities for growth. The company's strategic investments in these regions over the past several quarters to improve operational and sales performance are yielding results. The company’s business particularly benefits from its strong presence in emerging markets with an extended portfolio that includes upper and lower joints. According to the company, this will help develop the extremities and trauma business going forward.
Within emerging markets, strength in Asia Pacific has driven strong revenue growth so far. Banking on product launches and strong customer adoptions, Zimmer Biomet is successfully expanding its presence in the emerging market.
Zimmer Biomet has been witnessing strong market share gains within reconstructive Knees and Hips in key geographies in recent times despite macroeconomic challenges. The third quarter of 2024 marked the 11th consecutive quarter in which Zimmer Biomet's revenues have grown in mid-single digits or above. The International business, overall, exceeded sales expectations in the third quarter, backed by strong demand in the key markets across both Reconstructive Knees, Hips and the S.E.T. categories.
Although the company’s Knee business witnessed some challenges posed by the ERP system implementation, internationally, this business grew 10% in the quarter. Further, the Oxford Partial cementless Knee launch in 2025 is expected to drive 60% share in the European market. Within Hips, the company expects the upcoming launches of Z1 HAMMR and Navigation, like OrthoGrid and ROSA posterior in Europe, to drive market share. Zimmer Biomet also currently looks forward to a strong pickup of ROSA Shoulder in 2025.
Zimmer Biomet Holdings, Inc. Price
Zimmer Biomet Holdings, Inc. Price
Zimmer Biomet Holdings, Inc. price | Zimmer Biomet Holdings, Inc. Quote
Currently, Zimmer Biomet is on a diversification journey with its S.E.T. (comprising Surgical, Sports, Upper Extremities, and Restorative Therapies) business. The company has strategically grown S.E.T. sales by at least mid-single digits in recent times. Zimmer Biomet currently expects this trend to continue in 2025 and 2026, driven by consistent market share gains of CMFT (Craniomaxillofacial and Thoracic), Sports and Upper Extremities.
Over the past three months, shares of ZBH have lost 0.9% compared with the industry’s 2.3% decline. With the company consistently focusing on strategic market expansion and new product launches, we expect the stock to gain momentum in the coming days.
Factors Impacting ZBH Stock's Growth
The ongoing industry-wide trend of staffing shortages and supply chain-related hazards is denting growth for Zimmer Biomet. Deteriorating international trade and geopolitical complications lead to a tough situation related to raw material and labor cost as well as freight charges. Added to this, a high interest rate scenario has put the dental treatment space (which is highly elective) in a tight spot. Within Hip category, headwinds in Russia are disproportionately impacting the outside U.S. business. Further, within the S.E.T. category, Zimmer Biomet is facing challenges in the form of reimbursement headwinds, particularly in the Restorative Therapies business. In addition, the company also noted acute supply challenges within Sports and Trauma. All these are creating significant pressure on the company’s revenues and operating profit.
During the third quarter, the company incurred a 3.9% increase in the cost of product sold (excluding intangible asset amortization) and a 3.1% rise in selling, general and administrative expenses. Adjusted gross margin reflected a contraction of 34 basis points while the adjusted operating margin contracted 18 bps in the quarter.
Further, a substantial portion of Zimmer Biomet’s foreign revenues is generated in Europe and Japan. In recent times, significant increases in the value of the dollar relative to the euro, the Japanese yen, the Swiss franc or other currencies are having an adverse effect on the company’s results of operations. In the third quarter of 2024, Zimmer Biomet’s net sales were adversely impacted by 0.1% from changes in foreign exchange rates. For the full year, the company currently expects an adverse impact of 75 basis points from foreign exchange on its revenues.
Key Picks
Some better-ranked stocks in the broader medical space are Penumbra PEN, Haemonetics HAE and ResMed RMD, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Penumbra’s shares have risen 10.5% in the past year. Estimates for the company’s 2024 earnings per share (EPS) have jumped 0.7% to $2.81 in the past 30 days. PEN’s earnings beat estimates in three of the trailing four quarters and missed on one occasion, the average surprise being 10.54%. In the last reported quarter, it posted an earnings surprise of 23.19%.
Estimates for Haemonetics’ fiscal 2025 EPS have remained constant at $4.59 in the past 30 days. Shares of the company have lost 3.6% in the past year against the industry’s growth of 17.3%. HAE’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 2.82%. In the last reported quarter, it delivered an earnings surprise of 2.75%.
Estimates for ResMed’s fiscal 2025 EPS have increased 2.5% to $1.61 in the past 30 days. Shares of the company have surged 113.5% in the past year compared with the industry’s 17.3% growth. RMD’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 25.47%. In the last reported quarter, it delivered an earnings surprise of 52.17%.
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